NRC Group ASA

Welcome to the second quarter presentation for NRC Group. After the presentation, we will host a Q&A session and for those of you who participate online, you can write your questions in the chat. Second quarter has been a good quarter for NRC Group with strong financial and operational performance. We continue to see a high activity level, and we have delivered a strong second quarter result of 65 million. The strong second quarter result confirms the positive trend in the company. Going back to 2020, we had an EBIT in second quarter of 20 million, increasing to 32 million in 2021, and then delivering 60 million last year. which was also a very strong second quarter result. We start to see the results of the actions we have initiated in Sweden for the last six months. We see that the profitability in Norway is continuing to increase, and we have now crossed a 4% EBIT margin measured in the last 12 months in Norway. We continue to see solid profitability in Finland, although somewhat down from last year. With somewhat lower revenues, improved results, our EBIT adjusted margin has increased to 3.6% for the quarter. And when it comes to operating cash flow, we have delivered a really strong operating cash flow from second quarter with 107 million. And quarter two is normally a quarter where we deliver significantly negative cash flow due to the seasonality of our business. We have delivered order intake of 1.6 billion in the quarter, and we have a very strong order backlog of 8 billion. And we see several interesting tenders coming up, giving us good opportunities to grow our order backlog going forward. When it comes to health and safety, we are not satisfied with our results. We delivered zero serious injuries in the quarter and in the first half of 2023, but we have too many injuries in total in the company. And this is driven by two categories of injuries. The first one related to the use of handheld tools and heavy equipment, causing crushing and cutting injuries in hands and legs. We need to be more aware of the use of the right equipment for the right task and do a proper risk assessment before initiating the work. The second category is related to the fact that we walk a lot in rough terrains besides the railways, causing tripping and subsequent injuries connected to knees and ankles. And we need to raise awareness related to both of these categories of injuries in order to improve our results on these KPIs going forward. The positive trend in sickness absence is continuing with a sickness absence of 3.8% for the quarter, well in line and better results than our industry peers. The EU taxonomy highlights NRC Group's unique position when it comes to building sustainable infrastructure by delivering maintenance and construction services for railways. In the first half of the year, more than 90% of our revenues were eligible according to the taxonomy and 68% was aligned according to the taxonomy. And I think you will struggle to find construction companies getting close to us on these KPIs. We believe that tighter regulations from the European Union will further highlight and create a bigger interest both from equity and debt investors when it comes to investing in NRC due to our unique sustainable position. And in the video you will see now, you will get some more insight into how unique NRC Group is when it comes to building sustainable infrastructure.

First, it's great to be here on top of the construction site, but I learned a lot about a lot of the new and emerging technologies.

It's important to show the project as it is, that this is something we are building according to the strategy that NIC is building, sustainable projects. And a project that the Oslo municipality has fronted as a very strong environmental project.

We talked about how the cement here that is in use is of low carbon intensity, great progress and innovation on that. The biofueling of the trucks and using that, which also has low emissions, lots of reuse and recycling of the materials, I think you said up to 99%. So it's really great to see a construction site come together with so much forward thinking around environmental sustainability, but also, as we say, to demonstrate that you can be environmentally sound, but also sustainable. economic and budget-conscious, financially conscious, as you do the project.

What we, as suppliers, are concerned about is that we are required to. And when we get that, we build competence. We also build a sub-entrepreneur market and supplier-led, which sees this as a market opportunity. If we can recreate the requirements for several projects, as the Oslo municipality has done and says they will do in the future, the future will be bright for that type of projects.

In NRC Group, we are extremely proud that the head of UN Global Compact chooses to visit the NRC Group project to learn more about how we can transform the construction industry and deliver projects in a more sustainable way. As Arjen mentioned, we need help from our clients to incentivize sustainable behavior in the construction industry. And to give one example, NRC Group has invested and converted half of our truck fleet to be fueled on biogas, which you saw on the video. This has reduced our CO2 footprint by more than 5,000 tons of CO2 per year, and it would not have been possible without the right incentives in the contracts from the municipality of Oslo. They have been on the forefront on this topic and they have been an important driver for developing sustainable construction also in NRC Group. Now Ole will take us through the details of the financial situation. Thank you, Henrik.

Looking at the P&L for the second quarter. Financially, we had a good quarter. All of our revenues is somewhat down compared to last year. Our profitability is improving. Revenues came in at 1.8 billion, which is down 6% compared to the same quarter last year. On a like-for-like currency, the reduction is 13% due to lower volumes in Finland and Norway. Our operational results, measured here as EBIT adjusted, improved with 5 million and came in at 65 million in a quarter. And this gave an EBIT margin of 3.6%. Net financial items came in at minus 17 million, which is more or less unchanged from last year. And this is because we have hedged NIBOR on our bond loan at 1.83%. And as a sum, this gave a net profit of 37 million in the quarter, which is an improvement from 32 million in Q2 last year. And the earnings per share was 0.5 kroners in the quarter. Looking at the longer term development measured here as rolling 12 month performance. The performer figures presented in this graph excludes the Gravco business, which we sold in Q1 2023, and also excludes the civil business in Karlstad, which we decided to discontinue in Q2 2023. And as you can see, we have shown a steady improvement in sales and profits over the last few years, and our margin is running around 2.5% on that rolling 12-month performance. Order intake in the quarter was 1.6 billion, and this gave a book-to-bill ratio of 0.9, as you can see in the graph to the left. And the majority of the order intake in the quarter came from Finland. Our total order backlog now stands at 8.0 billion, which is down 4% compared to where we were at the same quarter last year. And if we drill down in the order backlog, which is for delivery in the second half of 2023, you have to look to the graph to the right. As you can see here, we now have 2.9 billion for delivery in the second half of the year, which is 8% higher than we were at the same time in 2022. And we've seen a gradual improvement in our order backlog over the last few quarters. However, even though we have delivered a flat sales in the first half of the year compared to first half of 2022, and the fact that we have an order backlog for the second half of the year, which is 8% higher than last year, we still believe we will have a slight reduction in sales in 2023 compared to 2022. And the reason for this is that in 2022, we had several large projects that unexpectedly grew significantly in size. And we do not expect this to happen to the same degree in 2023. Moving to our balance sheet, our total balance stands at 5.5 billion, which is slightly down from 5.6 billion in the same quarter last year. And our net interest bearing debt is slightly down to 968 million in Q2, as you can see in the graph to the right. This is down from above 1 billion, both in Q1 this year and Q2 2022. And the net interest bearing debt, excluding operational and financial leases, now stands at only 445 million. And the equity ratio is firm at 44%. Some comments on the cash flow. Cash flow from operation in second quarter was positive with 107 million. A result we are very satisfied with. Q2 is normally a working capital intensive quarter, but despite this, we managed to keep the operational cash flow on a high level. And as you can see on the graph to the left, the operational cash flow in Q2 has significantly improved compared to Q2 last year and Q2 in 2021. Some other comments to the cash flow, to the graph to the right. As you can see, the cash flow from investment activities, or capex, was only minus 9 in the quarter, and the cash flow from finance activities was minus 78, which leaves a cash position at the end of the quarter of 427, a very good improvement from Q1 in light of the seasonality. Moving to our financial position, we now have a Euro bank loan of 273 million kroners and a bond loan of 600 million kroners. And the maturity profile of the bank loan, you can see in the graph in the middle, we have an installment of 14 million per quarter and the bank falls due in Q3 2024, while the bond loan falls due in full in Q3 2024. On the liquidity side, we have the mentioned $427 million in cash, and we have a $200 million undrawn credit facility. So we have more than $600 million in available liquidity currently. To the right, you can see that we have a leverage ratio target to be below 2.5 times EBTA. And we come down to this threshold over the last few years. And in Q2, the leverage ratio was 2.8 times EBTA, a level we are very satisfied with in light of we are in the middle of a high production period. Yesterday, we published our first green financing framework, and we are among the very few companies that received a dark green shading from S&P global ratings. And this is part of our commitment to provide sustainable transport solution. The framework can be used for future green financing products and will help us drive down the cost of capital. And we expect to renew the long term debt financing well before the maturity in 2024. And before I hand it over to Henning for some operational updates on each country, we would like to show you a video of a project that will typically fit very well into a green financing product.

Here on the Trondheim-Merauke track, we will electrify 120 km of track stretch from Trondheim to Sjørdalen, and then from Hell to Sverige. This is the first major electrification in Norway since the 70s. We have started about halfway through the project, and about 3,000 foundations will be set up along the track. The foundations we use for this project are built with a hollow space, which makes them cheaper to transport. They are produced with less concrete, which means that when we have put a foundation here against a standard foundation, we have saved about 48% of the CO2 emissions. In addition, we try as much as possible to reuse materials, and especially on the copper cable, it is always recycled copper, and that has an enormous environmental benefit. Here we have had a little extra challenge due to the fact that the road is built a little closer to the railway. So then we have to remove the railing and we have to remove some of the concrete elements in the road to get room to set the foundation. This is one of the three tunnels we have on the project. It is Gudå Tunnel, the shortest. What we are doing here now is to expand the profile so that we get space to build the KL facility inside. When we are done with the expansion here now and things are secure, we will set up the bolt groups at the top, which we will attach the masts to, so that we can have contact guidance and conduct electricity through the entire tunnel. Behind us here now, we have one of the big challenges with building up a track from the 18th century, is that it is not completely adapted to today's conditions. So then we have to add a lot and even out and blow away some stones, so that we can build the track nicely through the terrain and can build a coal plant on top of it. You are close to all of our specialists on the field, so here we have with us good team leaders from all areas of expertise who are very good at pulling in the same direction and getting the details and nuances that make it possible.

Electrification is one of the bigger projects in NRC's portfolio, and it shows key elements of our strategy in practice. As Odd-Magne told on the video, most of our rail technical disciplines are involved in the project. But I guess for most of you looking at this, you can also see that it's very important to have extensive civil construction competence, even though you do railway projects. It's a big project, and NRC Group's size allows us to have a strong competitive edge when it comes to bigger projects. Tønder med Råkerban could not have been won or executed with one country alone. This is a joint project with a joint project management team and execution team from Sweden and Norway. And as important is that this bigger project is the fuel we need to grow our revenues and profitability in the future. It's the best arena to train and develop our employees to get them to faster being able to take on more responsibility and then generating the necessary long-term growth and profitability for the company. And I think it also clearly shows NRC Group's unique position when it comes to delivering sustainable infrastructure in a sustainable way. So let's take a closer look on the key highlights for the quarter in our three different countries. And we will start in Norway, where we continue to see a strong positive trend in profitability. As mentioned, we have now crossed the 4% hurdle on the EBIT adjusted margins measured by the last 12 months. Looking back two years, as you can see on the top left here, two years ago, we had a rolling profit in Norway of minus 42 million, while in second quarter this year delivered 90 million. So the turnaround that has been executed by the Norwegian management team have been very successful and they have done a great job executing this process. Revenues in Norway is down 164 million versus same quarter last year. It's driven by reduced activity in civil construction and environment. The improved results are driven by strong performance of civil construction, but partly compensated by somewhat weaker results within our demolition and recycling business. And as communicated in first quarter, we are heading into a tougher market in this segment, and we are continuously adjusting our capacity to mitigate that. The order intake in second quarter and in the first half of the year in Norway has been weaker than what we want. And this is, of course, a big priority going forward to win new projects to generate the necessary profitable growth. However, we do have a very attractive pipeline when it comes to rail construction. We see several big and good opportunities coming up for us in the next nine months. So we are comfortable with the situation and believe we have good prospects going forward. In Sweden, we are gaining momentum from the actions we initiated during the first half of the year. This being change of management, significantly cutting overhead costs, increasing our tender prices, and also the decision, of course, to discontinue the civil activities in the Karlstad area in Sweden. And related to the latest topic, in August we signed an agreement with the management of the Karlstad unit, where they do a management buyout and take over the responsibility of our remaining projects in civil construction. This is positive in many ways. Employees will be able to continue their work in the new company, and for NRC Group, it significantly reduces our operational risk related to ramping down these activities. Accounting-wise, it will have limited effects on our numbers. In Sweden, we are delivering improved profitability in the quarter, delivering an EBIT adjusted of 10 million. And this is driven by improved results in maintenance, but also, of course, the lack of losses in civil construction. The order intake for the quarter has been modest, but we have a very strong both short and long term order backlog in Sweden. We need to win some more projects in rail construction for the high season next year. But as you will see later in the presentation, we have a solid tender pipeline and lots of opportunities in this area as well. When we announced the decision to discontinue our activities in civil construction in Karlstad, we were asked to present pro forma figures for the remaining activities in Sweden. And as you can see in the middle and to the right of this picture, our profitability in rail maintenance and rail construction have improved significantly during the last two years. With a rolling 12-month result of minus 78 million in quarter 2021 to having broken even for the last quarter in Sweden. And when we have discontinued our civil construction activities in the Karlstad area, we can focus our full management attention on continuing to develop our core business, where we also have the best prospects when it comes to market growth and profitability potential. And that's why we believe that the positive trend you see here will continue going forward. And as mentioned, the tender pipeline in rail construction is very strong. We can be selective in which tenders we engage in. We have seen a significant reduction in the rail maintenance pipeline in quarter two. This is mainly driven by two big contracts, maintenance contracts for the Swedish metro system. that were due to tender in quarter two. Due to very unfavorable contract conditions, we chose not to deliver a tender. And as you remember, we won four new maintenance contracts last year. And these are long-term contracts, so we have more or less secured our activity level in maintenance for the next five to seven years. Of course, we want to grow, and we want to grow profitable in this business. But we can be more selective when it comes to where to go tough and where to stay away. And when contract conditions are so unbalanced, as we saw with the metro system maintenance contracts, it's better to say no thanks. In Finland, in second quarter, we saw a small nominal growth in revenues, but measured in local currency, we saw a decline in activity level. And this is driven by lower activity in rail construction and light rail, where we have several bigger projects getting closer to the end of the life cycle. One example being the Jukkeri light rail project, the biggest project in NRC Group's history with more than 2.5 billion in revenues, where we handed over this project to the client last Friday. I want to say a big thanks to the project team in Finland delivering another successful light rail project for our client, delivered one year in one year before schedule, and also with significant lower costs. Looking at profitability, it's down with 8 million compared to last year. It's driven by lower margins in rail construction, and as we communicated in first quarter, we did a write-down of a bigger rail construction project in Finland, which will impact profitability in this segment for the rest of this year. But we have also initiated some growth initiatives in Finland related to civil construction, where we are targeting projects close to the railways and close to the railway competence we have. These have incurred some costs before we are able to reach the necessary scale of the project portfolio. And this is also impacting the results in Finland this quarter. We are happy to see a strong order intake in Finland in quarter four, with the biggest win being the Turku Railway yard, a contract of 35 million euros with several options which can increase it. The tender pipeline remains strong in Finland in rail construction. We are also entering a new phase of light rail tendering, where we expect three to four new light rail projects to be tendered within the next 12 months. And in the medium to long term, we also see good prospects in Finland when it comes to the rollout of ERTMS. In maintenance, we are in a slow period of the tender cycle, so we expect limited activity here for the next nine months. So to sum up quarter two, it's been a strong quarter for NRC Group, both when it comes to operational and financial performance. Revenue is down 6% in the quarter, which corresponds well with our guiding, saying that we will have a slight decrease in revenue in 2023. We deliver improved profitability, and our guiding continues to be a moderate increase in EBIT adjusted margins for the year. Our order backlog remains high. We have an attractive tender pipeline, which we believe to support our medium to long-term growth ambitions. Looking at the countries, the positive trend in Norway continues. We are starting to see the results from our actions in Sweden, and we also see improved results in Sweden in the quarter. We are still delivering solid profitability in Finland, although it's a bit lower than last year. This is my final quarterly presentation for NRC Group, and as announced, Anders Gustavsson will take over as CEO of NRC Group 1st of October this year. And I'm sure Anders, with his extensive construction industry background, will continue the systematic work to improve profitability in NRC Group and strengthen our market position. We have worked hard for the last four years to build a robust organization in NRC Group, and we have strengthened our key commercial processes. We have started to see results, but I believe that the profitability will continue to show the effects of this in the time to come. During the past three years, we have experienced some quite extraordinary events. We had a pandemic with remote working and significant disruptions in our value chains back in 2020. We have seen a sharp increase in raw material prices for the past year due to the war in Ukraine. And I think you also have seen how a full stop in the housing market in the Nordics have impacted many of our construction peers. But I think all these three events shows the resilience of NRC Group's business model and the resilience of NRC Group markets. The demand for our services have continued to increase and we have seen limited effects on the results in NRC Group from all of these three events. So the combination of a resilient business model and our unique position when it comes to delivering sustainable infrastructure paints a bright picture for NRC Group going forward. Thank you for participating and we will now start the Q&A session.

We can start from a digital chat here. So one question related to the green finance. So any comparable companies in relation to the rating we got, the dark green rating?

From the top of my head, at least listed companies. I know Skatec and Tomra has it, but it's not many listed companies that has a dark green shading.

i think also the presentation today with the videos we have shown shown shows our unique position when it comes to building sustainable infrastructure one thing is of course the effects when it comes to being an attractive investment but also the recruiting power we have Attracting new talents in the market by being on the forefront in this topic is of course equally important as the financial effects of it.

Should we do one more here? What do you expect in terms of revenue development in second half in Finland, in the completion of the large project?

We do not guide on revenue development per country, but our guidance for the year across all our markets is a slight decrease in revenues compared to 2022.

And since then, revenues the first half of this year is flat compared to 2022, means that we are indicating that it will be slightly down for the group in the second half of the year.

I would like to ask some questions. The change in the tender contract from the first quarter, how much is related to contracts actually being handed over to those who won the contracts? And the second question would be in the third quarter here, have funds had an impact on your operations? And out of curiosity, can you specify what was so unfavorable in the maintenance complex?

Okay, let's start with the first one with the tender pipeline. The tender pipeline is going up and down and bigger projects have a significant impact, of course, when they enter the pipeline or goes out of the pipeline. All the project that goes out of the top pipeline is won by some of our competitors. And I think that is the importance of why we show this tender pipeline that even though we don't win all the project, it tells something about activity level. And then our competitors win, they have less capacity to compete for new projects and it puts us in a better position to compete for the rest of the projects available in the coming period. So especially the Swedish maintenance contracts, it was two for the Swedish metro station. It was also one for Trafikverket where we didn't win, that we came in second. So that is the biggest project that has been moved out of the pipeline. related to hans it has limited impact on our operations we have received some requests to to assist bananur but this is marginal in the big picture for nrc group and then your last question was related to the unfavorable terms Basically, they put all quantity risk on the supplier and giving us little opportunities to impact these quantities. So it's very difficult to estimate how many resources you need, and you basically take all the risks. So there was a contract with a lot of downside risk and very limited opportunities in our view.

Any cost reduction initiatives planned going forward in the second half?

We are working continuously, of course, to trim our cost base. During the first half of the year, we did significant cost cuts on the overhead side in Sweden that will continue to yield results in the period to come. Besides that, we are not initiating any bigger programs. We are working every day to have an efficient cost level in the organization.

So just to add that, So the majority of the actions in Sweden has been completed. But the benefit of that takes like up to 12 months to face it. But we have had already some benefits in Q2.

Can you say anything about the competitive situation, especially in the civil market? Has that changed or is it the same as before?

I would say it's more or less the same as before. It's a lot of projects out in the market. And if you read market reports from our competitors as well, you will see that they paint a quite bright picture when it comes to volumes in the infrastructure market on the civil side X railways. And as you know, on the railway side, we expect very good markets in all three countries for the coming years. was it thank you for attending and thank you for all questions have a nice day